Bonds were remarkably resilient over the extended weekend given the moderate rebound in the stock market. As of Friday afternoon, yields and stocks swooned together in response to trade war escalation with China. Stocks recovered half those losses by 3pm, but were unchanged to slightly stronger. The morning hours suggested a modest sell-off, but buyers returned after Powell's speech. He didn't say anything that was obviously worth a rally, so perhaps it was the absence of hawkishness that helped.
Losing some ground after stronger open. MBS down 1 tick (.03) and 10yr up 0.2bps at 4.036.
01:11 PM
Slightly stronger after Powell speech. MBS up 3 ticks (.09) and 10yr down 0.2bps at 4.031
05:10 PM
Little-changed at the close with MBS up 3 ticks (.09) and 10yr yields down 0.4bps at 4.029
Lock / Float Considerations
With Tuesday showing bonds able to hold last week's volatile gains, the risk/reward level is more muted in the new week. Data will be light due to the shutdown. The biggest risk come from unscheduled, unexpected headline shocks (as seen last Friday). With rates at multi-week lows, risk-averse clients remain in lock mode. Risk-tolerant clients wait for more negative volatility to force their hand.
